Emerging Markets Regain Confidence of Investors With ETF Rebound

Emerging markets drew the largest investment flows among U.S. exchange-traded funds last week on bets developing-nation stocks will rebound after they fell to the cheapest relative to developed-nation peers since 2006.

Investors added a net $1.6 billion into ETFs focused on emerging-market equities and bonds in the five days through March 28, helping trim the outflow this year to $12 billion. Flows into the IShares MSCI Emerging Markets ETF, the second-largest of its kind, totaled $1.4 billion, the most among 1,989 U.S.-based funds tracked by Bloomberg.

The MSCI Emerging Markets Index of stocks rose for a seventh consecutive day today, reducing losses for the year to 0.9 percent, after the valuation fell to the lowest versus developed-market peers since 2006. Currencies including the Turkish lira and South African rand are erasing losses for the year after their central banks raised borrowing costs, overcoming China’s economic slowdown, the reduction of stimulus from the Federal Reserve and rising geopolitical tensions.

“The sentiment is becoming less negative at the margin for emerging-market equities,” Morgan Harting, a senior portfolio manager at asset manager AllianceBernstein Holding LP, which oversees about $458 billion, said by phone from New York. “At some point, valuation just starts to matter. The gap between emerging equities and developed equities had become extremely wide.”

MSCI’s emerging-market stock gauge added 0.9 percent to 993.31 as of 11:54 a.m. in New York, poised for its longest stretch of gains since July. Its loss this quarter compares with a 0.7 percent gain in the gauge for developed market stocks. It is the fifth consecutive quarter that the emerging markets trailed their peers in advanced economies, matching the longest underperformance since 2011.

Emerging markets drew the largest investment flows among U.S. exchange-traded funds last week on bets developing-nation stocks will rebound after they fell to the cheapest relative to developed-nation peers since 2006.